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BUSINESS Tuesday 3 January 2017
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The money numbers you need to know

LIZ WESTON (your debts). care. In their book “All Your
NerdWallet Your net worth divided by Worth,” bankruptcy expert
Some numbers matter your lifetime income, ex- (and current Massachu-
more than others. How pressed as a percentage, setts senator) Elizabeth
much you make is impor- is your wealth ratio — or Warren and her daugh-
tant, for example, but your what you have to show ter Amelia Warren Tyagi
financial health depends for all the money flow- recommend limiting must-
far more on how much you ing into your life. If you’ve haves to 50 percent of af-
keep. earned $500,000 and your ter-tax income.
Knowing certain numbers net worth is $125,000, your A 50 percent limit isn’t easy
can help you understand wealth ratio is 25 percent. to achieve, but it frees up
how well you’re convert- If you’ve earned $1 million money for “wants” (30 per-
ing income into wealth, as and your net worth is $2 mil- cent) and savings or debt
well as the impact of your lion, your wealth ratio is 200 repayment (20 percent).
spending and tax situation percent. There’s no pass/ Sticking to a 50/30/20
on that process. The follow- fail here. Younger people budget also helps people
ing calculations can help likely will have lower ratios better survive job loss and
you make better decisions. than older people who’ve other economic setbacks This file photo provided by NerdWallet shows Liz Weston, a col-
1. YOUR WEALTH RATIO been saving and investing by limiting their over- umnist for personal finance website NerdWallet.com.
A wealth ratio is a measure for decades. Knowing your head. Having an emer- Associated Press
of how effectively you’ve number can motivate you gency fund equal to three
converted your lifetime in- to look for ways to save months’ worth of must- last dollar you earned. If such as municipal bonds or
come into wealth. and invest more so that have expenses is a good you’re a single filer in the variable annuities, that can
Calculating the ratio is a key your ratio grows. goal after you get on track 25 percent federal tax benefit people in higher
exercise in “Your Money or 2. YOUR OVERHEAD RATIO with retirement savings bracket, the first $9,275 of brackets.
Your Life,” a guidebook for How much of your after-tax and have paid off trouble- your 2016 taxable income Your future tax bracket
the simple living and early income is eaten up by ba- some debt such as credit is taxed at the 10 percent matters, as well. If you an-
retirement movements, first sic, must-have expenses? cards. Any loans may be rate, the next $28,375 at 15 ticipate your bracket will
published in 1992. Authors If you’re having trouble affordable if the payments percent and the amount drop in retirement — which
Joe Dominguez and Vicki making ends meet, calcu- don’t push your must-have above $37,650 at 25 per- happens for most people,
Robin suggested adding lating your overhead ratio expenses over the 50 per- cent. according to experts —
up the annual earnings can help explain why. It cent mark. Your bracket determines making deductible con-
over your entire life, as re- also can be handy to know 3. YOUR TAX RATES the value of your itemized tributions to individual re-
ported in Social Security when you’re determining Your tax bracket doesn’t deductions and tax-advan- tirement accounts now
statements or old tax re- if you can afford new loan reveal the amount of taxes taged investments. Some- is a good plan, because
turns. To that total, you can payments or how much paid on your total income. one in a low tax bracket, the tax breaks from those
add in other money re- to save in an emergency Instead, the bracket (also for example, doesn’t get contributions likely will out-
ceived that wasn’t report- fund. called the marginal tax much value from write-offs, weigh any taxes you’ll pay
ed to Social Security, such A must-have expense is rate) reflects how much such as mortgage interest on future withdrawals of
as investment and interest one that can’t be delayed Uncle Sam claimed of the deductions or investments the IRAs. q
income, inheritances, gifts or skipped without serious
and gambling winnings. consequences. They in-
The next step is to calculate clude shelter costs, trans-
your net worth — what you portation, groceries, utili-
own (the value of your as- ties, insurance, minimum
sets) minus what you owe loan payments and child